S Korea Q4 growth slows to 0.4%

STEADY HAND:The central bank may cut interest rates if exports, which fell for the first time in two years, deteriorate further and domestic demand falls, analysts said

Bloomberg

A customer stands in front of a clothing store in Seoul, South Korea, yesterday.

Photo: AP

South Korea’s economy grew at the slowest pace in two years as Europe’s sovereign-debt crisis weighed on exports.

Fourth-quarter GDP expanded 0.4 percent from the third quarter, when it gained 0.8 percent, the central bank said in Seoul yesterday. That compares with the median 0.5 percent estimate of 10 economists surveyed. From a year earlier, the economy grew 3.4 percent, after a 3.5 percent gain in the third quarter, yesterday’s report showed.

Exports fell for the first time in two years and investment and consumption also declined in the final three months of last year, yesterday’s report showed.

“There won’t be much choice for the Bank of Korea other than to cut rates” if the export slump worsens and first-quarter economic growth deteriorates, said Park Sang-hyun chief economist at Seoul-based HI Investment & Securities Co.

The won rose 0.7 percent to close at 1,125.95 per US dollar in Seoul on Wednesday, while the benchmark KOSPI stock index gained 0.1 percent. The currency fell 6 percent over the past six months, the second-worst performer among Asia’s 10 most-used currencies.

The economy may contract 0.1 percent in the three months ending in March from the previous quarter because of weaker exports and ‘‘tepid” domestic demand, according to Kwon Young-sun, a Hong Kong-based economist at Nomura Holdings Inc.

Politicians may combat the slump with a 12 trillion won (US$10.7 billion) supplementary budget, equivalent to 1 percent of GDP, and the central bank may cut rates in April and July, he said.

South Korea’s inflation rate has remained elevated in recent months in part because a weakening won has made imported goods more expensive. Consumer prices rose 4.2 percent from a year earlier in November and last month, exceeding the central bank’s target limit of 4 percent and the average of 3.2 percent for the decade through last year.

Risks to South Korea’s economy are increasing and inflation may ease at a moderate pace as growth slows for some time before picking up, the central bank said on Jan. 13, when it decided by a unanimous vote to keep the main rate unchanged for a seventh straight month.

South Korea may enter a normal recovery path in the second half of the year, central bank Governor Kim Choong-soo said that day.

The central bank forecast last month that the economy would grow 3.7 percent in this year and 4.2 percent in 2013. The economy expanded 3.6 percent last year, the report showed.

Consumer prices may increase 3.3 percent this year after a 4 percent gain last year, according to the projections.

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